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Wednesday, May 18, 2022

Low Interest Rates Put Charge in KB Home’s Entry-Level Houses

Low Interest Rates Put Charge in KB Home’s Entry-Level Houses


Contributing Reporter

KB Home has been at ground zero of L.A.’s recent housing boom, although the pace in 2002 was markedly slower than that of previous years.

The 522 units that Los Angeles-based KB Home built in Los Angeles County in 2002 landed it the title of the Business Journal’s most active residential developer.

The homebuilder slowed its furious pace of 2001, when it sold 654 units in the county, closing on 464 of them. Spokeswoman Debra Hotaling explained that the high price of land in L.A. County has pushed the company outward in order to keep building starter homes in Southern California.

Countywide, growth in the housing market began to taper off toward the end of last year, but new home prices surged 19.8 percent in the fourth quarter nevertheless, to an average of $304,610. The number of new home sales rose by 20.6 percent.

The engine driving KB Home’s success was low interest rates, which led to persistent, mostly unattended demand for affordable first homes, said Jay Moss, KB Home’s greater Los Angeles division president, who supervised 21 communities in Los Angeles County and the Inland Empire.

“I think our greatest challenge in 2002 was having enough product to satisfy demand,” Moss said.

Interest rates in 2002 were two-thirds lower than 20 years ago, but the median home price has nearly doubled since 1988, according to the California Association of Real Estate Developers.

Los Angeles-based KB Home’s largest project completed in 2002, the Belmont at Hasley Hills in Castaic, had 104 new homes and was the most active residential project in the county.

Belmont at Hasley Hills is five miles south of Castaic Lake, just off of Interstate 5. Homes in the new community range in price from $365,990 for 1,853 square foot models to $418,990 for 2,914 square feet.

Although the Belmont homes far exceeded KB Home’s average price of $130,000, they were close to the county’s median home price of $304,610. Of the Belmont project’s 186 lots, 86 have been delivered and 95 percent of them have been sold.

Kaufman and Broad Building Co. was founded in Detroit in 1957 by Donald Kaufman and Eli Broad. The company went public in 1961 and entered the California market when it relocated to Los Angeles in 1963.

In 1990, after the California real estate crash, Kaufman and Broad began expanding into Arizona, Colorado, Nevada, Utah and Texas. It changed its name to KB Home in 2001 and is now one of the nation’s largest homebuilders.

The company also entered the European and Canadian markets in the early 1970s. Its international activities focus on condominium complexes and other high-density residential properties. It is one of the biggest homebuilders in France.

From its early days, KB Home has focused on customized products. That means almost every home is sold before it is completed. Through its Web site, buyers can take virtual tours and use an interactive feature to plan out a customized floor plan.

The result, the company claims, is flexibility in the face of shifting economic trends. When things are going great, a family can order the larger home, and get the crown moldings and granite counter tops.

In more uncertain times, buyers can choose a smaller lot with more modest accessories. Everything, down to the appliances, can be ordered and rolled into the mortgage.

In the year ended Nov. 30, 2002, KB Home posted revenue of $5 billion, an increase of 10 percent. Net income surged 46.7 percent to $314.4 million, or $7.15 a diluted share, from $214.2 million, or $5.50 a share.

The sixth largest homebuilder in the United States, KB Home sold 25,565 homes in 2002 and had total U.S. revenues of $4.5 billion.

Within the past 18 months, KB Home purchased homebuilders in Jacksonville, Orlando and Tampa, Florida, and in Laredo, Texas. It also acquired Atlanta-based Colony Homes. Each of those areas has much lower new home prices than Southern California.

Nevertheless, the homes will continue to roll out in Southern California. KB expects to complete 12 communities totaling 1,241 lots in Victorville, Santa Clarita, Valencia, Rancho Cucamonga, North Fontana and Moreno Valley.

In Valencia and the San Fernando Valley, KB Home’s principal selling point was its low price per square foot relative to other homes.

Most Active Residential Developer – Player: KB Home

Projects: Hasley Hills; Delta Ridge; Mountain Glen

The Deal: In 2002, KB Home built 522 units in L.A. County. Belmont at Hasley Hills accounted for 104 of those, with four models priced from $365,990 to $418,990. Nationwide, KB sold 25,565 homes in 2002. New development is shifting away from L.A. County to Riverside, San Bernardino and the Antelope Valley where land is less expensive.

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